Additionality - Is the VCM really just about carbon?

The Voluntary Carbon Market, VCM, is our world’s revolutionary financial construct to incentivise private investors, governments, non-governmental organisations, and businesses across the globe to purchase and retire carbon offsets in the collective bid to prevent climate change. But when you dig deeper into the market you quickly learn that not all carbon offsets are the same.

Oh, they may all technically be the same thing; across the board one carbon credit equals one ton of carbon equivalents (tCO2e) sequestered from the atmosphere, but when it comes to the fluidity and interest of the market, a carbon credit’s price tag certainly seems to show us that not all carbon credits are equal. For example, you can buy a carbon credit from a Turkish windfarm project today for around $5, but if you wanted to buy a carbon credit from a forest conservation project in Costa Rica, you would be paying $45. So where does the difference come from? How do you quantify it, replicate it, and take it even further?

As a project developer these questions play a huge role in how we approach the development of new projects. Bottom line, like all project developers: we want to be creating credits that capture the most amount of value possible. If we want to create a higher value credit then we need to have a handle on how the market views and differentiates between credits.

What we are learning about the VCM today is that the carbon sequestered, that creates a carbon credit, is no longer the most important determining factor for that credit’s value. In fact, that’s the boring part. The market knows already that one credit represents one ton of carbon removed from the atmosphere. What the market wants to know is what else you’ve done, as a part of your project, beyond the required carbon sequestration. What’s the additionality?

We have learnt that additionality is the aspect of a project that is one of the most important contributing factors the market considers, when valuing a carbon credit. On the face of it, additionality is a broad term for describing the aspects of a project that delivers additional societal, environmental and or economic impact, products and or benefits beyond sequestering carbon.

Let’s look again at the first two carbon credit examples: Turkish windfarms vs Costa Rican forest conservation. Windfarms sequester carbon by generating energy through wind rather than through the burning of fossil fuels. Windfarms are a relatively easy method of mass-producing carbon credits with established economics and little variation in development and deployment. However, there’s not much else to a windfarm project that can be considered additional.

A forest conservation project, on the other hand, sequesters carbon by protecting the forest and preventing deforestation. This is where additionality makes all the difference. By protecting that forest, you could be protecting a variety of potentially endangered or culturally important flora and fauna; you are directly boosting local ecosystems, biodiversity; and you’ll be pumping money into small local communities who need it the most. Perhaps members of the community can create small businesses related to the project’s activities, further adding to the local economy. Perhaps the project promotes giving women equal opportunity for employment or gives a family the income required such that their children don’t have to work to help support the family, and instead go to school.

These are broad examples of what can be considered additional to a core forest conservation project, but these additionalities can be measured, monitored, quantified, and reported alongside a project. When this project’s credits enter the market, these additionalities drive a higher premium, because the market is willing to pay more for a credit that achieves so much more than the simple carbon sequestration brief.

This is the sort of impact we are writing into our project development in Sierra Leone. In our case, we are currently working to re-forest 14,000 hectares of previously deforested and degraded land in the Port Loko district of Sierra Leone. The scale of our project presents us with an opportunity to design with additionality in mind to achieve far more than pure carbon credit generation. 14,000 hectares is large, and within this space are numerous small rural communities that we will be working with and around. As such, we have been determined to ensure that we approach the project from the point of view of community engagement, biodiversity, and conservation to maximise our impact. We are learning directly from the communities the challenges they face, and we are working with them to help us design a project that they can take pride in and ownership of. It is only with the support of these communities that projects like ours will truly succeed.

We are seeing that there is a remarkably high demand for projects that deliver truly impactful additionalities. The market is made up of people, and people want to put their money towards projects that are delivering real benefits to the communities and environments in which they operate. Governments, businesses, NGO’s and private investors, either through their own mandates or from internal pressures coming from stakeholders, customers or just the general public, are moving away from buying mass produced, less additional carbon credits and towards credits from projects that have a larger shopping list of deliverables. As such, when it comes to developing a new carbon credit project, think about how you can deliver meaningful impact beyond sequestering carbon and you will see your efforts reflected in the value of your carbon credits.